The past 12 months have seen a huge increase in complexity for global families. Travel and business have been disrupted, markets have been shaken, and health and family have raced up the priority list for the majority. It is hardly surprising, then, that the results of the Julius Baer Family Barometer 2021 have been coloured by the Covid-19 pandemic, particularly when it comes to wealth planning.
In 2020, the top three discussion topics ‘beyond investments’ for families were family wealth, family governance, and regulatory aspects. This year, family wealth-related topics and family governance continue to hold the top spots, with 26 per cent and 25 per cent respectively. However, health has replaced regulatory aspects as the third most important topic, with 19 per cent of respondents citing it as the most important topic for their clients. This rise is the biggest of any of the topics and indicates that the increased focus on health in recent months has translated directly into the discussions that our clients are having with their advisors. We expect to see this trend continue with families and individuals placing greater focus on jurisdictions with solid healthcare systems when it comes to choosing where they spend their time. Solid infrastructure and public services have taken on a new importance, particularly for multi-generational families, who will often have more at risk members within their ranks.
The continued dominance of family governance is to be expected and we predict that this will continue to be one of the main discussion points within global families for years to come. We are living in a time of unprecedented global wealth creation, and while this increase of wealth brings an increase in opportunities – the possibility to live in multiple locations, send your children to schools abroad, and operate your business internationally – each new opportunity adds an additional level of complexity. The best way to counter this growing complexity is with a clear framework for how the family operates, yet according to our experts they only see this type of formalised governing body in roughly one in ten ultra-high-net-worth (UHNW) families. Family governance is key to ensuring the financial and personal happiness of today’s complex families, and as the focus within these families shifts towards protection, preservation, and preparedness in the wake of the health crisis, we expect to see interest in family governance grow in the years to come.
Wealth-related topics include philanthropy, succession planning, and wealth structuring. Within this category, which has topped the ranking of important topics beyond wealth in this year’s Barometer, we have seen philanthropy in particular growing in importance. Although it has been popular for a long time, thanks to the increased focus on helping others in the past year and the growth in sustainable and impact investing, demand for wealth and philanthropy solutions that combine good returns and doing good has never been higher.
More for your money
When it comes to investment topics, the pandemic has had less of a direct impact, with investment behaviour remaining relatively unchanged. Our surveyed experts have, however, seen an acceleration of existing trends and a shift in priorities here too. The Barometer results show a sharp increase in interest in Direct Private Investments over the past five years, culminating in them ranking first in the list of investment discussion topics in 2021.
There are a number of factors that have propelled private market investments to the fore in recent years. First, they offer exclusivity, and second, during times of market volatility such as we have experienced during the pandemic, they appear to be more stable, as investors do not see the price fluctuations as they would for liquid markets. In addition, many impact investments are private market investments, making it hardly surprising that these two investment topics appear together at the top of our survey this year.
According to our findings, sustainable and impact investing and ESG-related topics have grown the most in terms of importance over the past five years when it comes to investing. They are also the second most important discussion area for UHNWs and their advisors in 2021, which is in line with the findings for the ‘beyond investments’ section of our survey. This trend is set to increase further as we see wealth transfer from Gen X to Millennials and then to Gen Z, who are much more concerned with operating in an environmentally and socially conscious way. For multi-generational families, there will be the potential for conflict here as the views held by each generation might be widely divergent, making good family governance and, potentially, the support of independent advisors even more important.
Wealth in itself is not so important, but rather, it’s all about what can be achieved by using that wealth.
The generation game
Continuing the subject of generational differences, this year’s Barometer included a number of new questions about how families interact with their advisors and how they make decisions. Our findings suggest that our surveyed experts see a number of opportunities in how UHNW families manage their affairs that could help them hugely. The survey indicates that in every second family, decisions are being made by just one person. Moreover, the overwhelming majority of specialists primarily engage with only the patriarch or the matriarch of a family.
As we have seen, younger generations likely have their own views on how the family money is managed, and including them more actively in the decision-making process could help families to ensure smoother transitions of wealth between generations when the time comes. Introducing younger generations of the family to trusted family advisors could also help the next generation to learn as they grow and give them a better understanding of not only the family’s financial operations, but also their values and purpose. A family that is united behind a common goal is potentially more likely to enjoy greater success and happiness than one without.
The past 12 months have been particularly difficult for everyone, and although an improvement in the global health crisis appears to be on the horizon, complexity will continue to grow for global families for the foreseeable future. The good news is that this complexity can be managed with the right combination of support, governance, and planning.
The Julius Baer Family Barometer
Our Family Barometer examines the key findings of a yearly survey of private clients’ services experts who work with wealthy families. It explores the most pressing concerns and challenges faced by wealthy families, as well as their current needs. Please download a copy of the report to learn more.
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